4 Large-Value Funds to Support Your Income Strategy

Investors leaning on core bonds to provide stability as well as income have had some rough stretches in the past few years. In 2022, the Federal Reserve’s steep rate hikes sent the Bloomberg US Aggregate Bond Index down 13.0% that calendar year. The bond index recovered 5.5% in 2023 but slid again in early 2024. Altogether, from January 2022 through August 2024, the Aggregate Index lost an annualized 2.0%.

Meanwhile, the period showed the benefits of adding an equity fund with solid dividend income to an overall portfolio. Many such funds dwell in the large-value Morningstar Category, where the typical fund fell just 5.9% in 2022. That compared nicely with bonds and the S&P 500, which fell 18.0%. From the beginning of 2022 through August 2024, the standard large-value category member gained 7.2%—much better than bonds’ loss.

That said, the typical fund in the large-value category provides a 1.5% 12-month yield as of September 2024, which is less than half the core bond index’s level. Plus, the S&P 500′s 8.2% gain from January 2022 through August 2024 topped the average large-value fund’s 7.2% gain. Those results, of course, are only the typical ones. Investors seeking funds that had above-average yields and strong total returns during the period can find good options. Four of them are below.

Two especially impressive performers were passive index funds.

One solid overall result among passive strategies came from Schwab Fundamental U.S. Large Company Index SFLNX. It tracks the RAFI Fundamental High Liquidity US Large Index, which weights stocks by fundamental size—a mix of sales, cash flow, dividends, and buybacks—instead of market cap. Lately, that has meant a large-value portfolio that also included the “Magnificent Seven” stocks. From 2021 through 2023, its rolling 12-month yield averaged 2.3%. Moreover, its total returns in 2023 were great, and its first eight months of 2024 were good, driving a 9.4% annualized return from January 2022 through August 2024.

Another passive winner was Vanguard Value Index VVIAX

. It tracks the CRSP US Large Cap Value Index, which is market-cap-weighted. Per its name, it focuses on large caps, landing higher in the large-value square than typical peers and the Russell 1000 Value index. Its giant-cap tilt helped it hold up well in the 2022 downturn and thrive in the first eight months of 2024, driving an 8.8% return from January 2022 through August 2024. Its average yield of 2.6% from 2021 through 2023 was among the highest-decile yields of the large-value category.

Some actively managed funds also did well.

Fidelity Equity-Income FEQIX generated an 8.0% annualized return from January 2022 through August 2024, complete with a 1.6% average yield. Portfolio manager Ramona Persaud has a cautious bent and favors solid defense and yield alongside decent growth and quality. So, lately, the portfolio has tilted more to giant firms and blend stocks than most peers. That mix meant a solid 2022 and a top-quintile first eight months of 2024. Among large-value strategies, it has especially low volatility for a more comfortable ride.

The two subadvisors at Vanguard Equity Income VEIRX also navigated the period well, driving an 8.2% annualized return from early 2022 through August 2024 and posting an average yield of 2.6% over that stretch. Both subadvisors saw smooth management handoffs recently, with Matthew Hand taking charge of the Wellington sleeve in July 2022 and Sharon Hill stepping in for the Vanguard Quantitative Equity Group in early 2021. The fund uses the FTSE High Dividend Yield Index as its benchmark, so its yield is regularly in the large-value category’s highest decile.

This article first appeared in the August 2024 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.